Another S. Florida Thrift Bites The Dust

JACK NEASE Commentary

June 23, 1996|JACK NEASE

Another South Florida savings bank will be merged into a big out-of-state bank later this year, but this time, the story is different.

The sale is not being made because of financial weakness, avarice or fraud. This time, the people who control the thrift - Home Savings in Hollywood - have decided to bow to what they consider the inevitable. They are selling out to First Union because they think the economic facts of life are loaded against savings banks and don't have the expertise to convert the thrift into a full-service bank.

The merger is part of a major trend, and - in my opinion - it's a sad one. Once-proud savings and loan associations - the institutions that financed most American homes for many decades following World War II - are becoming an extinct breed.

The end has come in stages.

In the early 1980s, when many thrifts were squeezed between soaring interest rates on new deposits and low rates on old mortgages, dozens of Florida institutions were forced to merge with strong ones, including some headquartered in California and New Jersey.

Later in the same decade, the excesses of young, ambitious and sometimes crooked managers of new "go-go" thrifts caught up with them, and dozens of thrifts were taken over by the federal government or merged into stronger institutions.

Thrifts no longer thrive

Finally, a new generation of opportunists entered the industry, converting strong savings and loans into publicly owned companies, dealing themselves big blocks of stock and then selling out with big profits for themselves.

The sale of Hollywood Federal, announced last week, doesn't seem to fit any of these patterns.

President Tom Wall, who founded the Hollywood thrift in 1955 when he was a builder and developer, said he and others decided there is no future for independent, medium-size savings banks no matter how financially strong or profitable they appear now.

For one thing, he said, savings banks must pay much more than regular banks for deposit insurance. For another, opportunities for real-estate loans are diminishing and competition is greater - the special niche once dominated by savings and loans has disappeared.

This is not to say that Home Federal is failing. It has $1.2 billion in assets, profits of about $20 million a year and eight offices in Broward, Dade and Highland counties. And it is unusually well-capitalized, partly as a result of a public stock offering in 1992.

The thrift was reorganized that year and was put under mutual holding company Home Financial Corp. About $23 million in additional capital was raised by selling shares to officers and depositors for $10 apiece.

First Union will exchange 0.2233 of its stock for each share of Home Financial Corp. stock when the deal is completed, probably in November. That would make First Union stock worth about $13 a share based on the current market. The shares had gone as high as $16 in October.

Founder will net $600,000

The sale will be profitable for Wall and a colleague, Executive Vice President Harry MacDougall, but not as profitable as many thrift sales have been for their shareholders and officers. Wall said he and MacDougall each have about 200,000 shares, giving each a profit of about $600,000.

Contrast that with the sale of Coral Gables Federal to First Union several years ago. A small group of corporate executives received $49 million as part of the deal. Walter Hinson, the thrift's 48-year-old president and chief executive officer, received $15 million, about two-thirds of it profit, for his shares and options.

Home Federal's profits have been steady, about $5 million a quarter. But Wall said the next quarterly report will show a downturn.

There is some irony in the sale. Four years ago, when the thrift sold stock, officers said the extra capital would make takeovers more difficult.

But more important than any financial data is one reality: The two men who ran the thrift for so many decades have reached the age where they can take life easier. Wall is 72. MacDougall, who started as a teller as one of the thrift's first employees, is 68.

Sun-Sentinel columnist Jack Nease comments on business and economic issues affecting South Florida on Sunday, Tuesday and Thursday.